climate change - green breakfast seminar - natural capital
DESCRIPTION
Blake Lapthorn Solicitors' Climate change team held a green breakfast on Tuesday 4 December 2012. The guest speaker was Dr Stephanie Hime of KPMG who spoke about Natural Capital.TRANSCRIPT
Is natural capital a material issue?
4 December 2012
Presentation overview
• Overview of KPMG’s Climate Change and Sustainability Team• Overview of the research• Key definitions
• Biodiversity, ecosystem services and corporate performance
• Research methodologies:» Case studies» ACCA member survey» Company disclosure survey» Interviews with company directors
• Key findings• Recommendations
KPMG’s Climate Change and Sustainability Team
Presentation overview
• Overview of the research• Key definitions• Biodiversity, ecosystem services and corporate performance
• Research methodologies:» Case studies» ACCA member survey» Company disclosure survey» Interviews with company directors
• Key findings• Recommendations
Overview of the research
Objectives
• Investigate the concept of materiality
• Explores the extent to which natural capital is reflected as a business issue
• It focuses on biodiversity and ecosystems, specific constituents of natural capital
Key audience
• CFOs
• Accountants
Key definitions
• Natural capital – the stock of capital derived from natural resources.
• Biodiversity – the variability among living organisms from all sources.
• Ecosystem – dynamic complex of plant, animal and micro-organism communities and non-living environment interacting as a functional unit.
• Ecosystem services:• provisioning services • regulating services • cultural services• supporting services
Biodiversity, ecosystem services and corporate performance
Capital
CapitalManufactured Human Social
Intellectual Other Financial
Interactions
Capital
Natural Capital
BiodiversityEcosystem Services
Dependencies
Impact
Dependencies
Impact
Impact on corporate value
● Changing asset values/share price
● Impact on intangible assets
● Going concern issues
Business
● Dependencies e.g., raw materials, provision of a stable operating environment, etc.
● Impacts e.g., through pollution overexploitation, or may be positive through conservation activities
Economy and Society
Links between natural capital, biodiversity, ecosystem services and corporate value
Biodiversity and ecosystem services as a business risk and opportunityA changing landscape of risks
• 50% of company earnings could be at risk from environmental externalities (UNPRI)
• Risk that significant costs and benefits are not accounted for in corporate accounts
Natural capital and materiality
• Shareholder attention on BES issues growing
• BES beginning to feature in management disclosure and analysis
Biodiversity and ecosystem services as a business risk and opportunity
Type Risks (red) & Opportunities (green)
Operational Scarcity/ reduced quality of raw materials, disruptions to business operations
Improvement to quality of raw materials, increased output/ productivity, sustainable operations
Regulatory and legal
Restrictions on land access, litigation, resources quotas, pricing and compensation
Land access, meeting legislation and resource quotas
Reputational Potential damage to brand/ licence to operate
Potential improvements to brand/licence to operate
Market and products
Failing to match developments in consumer preferences
Matching developments in consumer preferences,
Financing Increased cost of capital/ inability to meet lending requirements
Ability to potentially reduce cost of capital/ meet lending requirements
Agenda
• Overview of the research• Key definitions• Biodiversity, ecosystem services and corporate performance
• Research methodologies:» Case studies» ACCA member survey» Company disclosure survey» Interviews with company directors
• Key findings• Recommendations
Research methodologies
• Case studies
• A survey of ACCA members
• A disclosure survey of the top 10 companies by market capitalisation in four sectors:
- Utilities- Forestry- Food - Construction
• Interviews with company directors
Case Studies
Infinito Gold:• Canadian gold mining
company• Lost 50% of share value due
to environmental concerns• Lead to uncertainties over
the company’s ability to function as a going concern
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R ican go ve rnm e n t uph o ld s it’s d e c is io n
2 4 th N o vem b er 2 0 1 0 C o sta R ican go ve rn m e nt an nu lle d Infi n ito ’s go ld m in e co nce ssio n d ue to co n ce rns abo ut its po te n ti al im pacts o n fo re sts, e nd ange re d spe cie s and agricu ltura l live lih o o ds 3 0 th N o vem b er 2 0 1 1 C o sta
R ican go ve rnm e n t uph o ld s it’s d e c is io n
Survey of ACCA members
• 60% of respondents agreed that the natural world was important to their business
• Over 50% of respondents had included natural capital issues in their company’s business risk evaluations at some point
• 49% identified natural capital as a material issue for their business and linked it to operational, regulatory, reputational and financial risks
• There was a relatively low response rate to the survey, although many respondents were company directors
Disclosure survey of high impact companies
• Many companies have general environmental policies, but few policies refer specifically to BES or natural capital
• 75% of companies reviewed report on BES issues, although much of this reporting limited to water related disclosures
• 43% of companies disclosure their materiality assessments. Half of these refer to natural capital.
Interviews with company directors
Global issues and trends
Risk and opportunity identification filterCorporate risks and
opportunitiesMateriality filter
CompanyIssues
disclosure
Interviews with company directors
“Indiscriminate draw-down of Natural Capital poses a risk to our business today and much more so in the future. The severe under valuation and degradation of Natural Capital constitute a real challenge to businesses in general, in achieving longer term strategic objectives.” James Singh, Executive Vice President & Chief Financial Officer (recently retired), Nestlé
“Natural resources such as timber and water are fundamental to Mondi. There is a strong link between license to operate and these issues. They are potentially an area of critical risk for the company.” Andrew King, CFO, Mondi
“The current financial reporting model only tells half the story about a business’s true performance and potential. The numbers say little of its reliance and impact on natural capital, factors that will increasingly influence competitiveness in a resource-scarce world.” Jean-Marc Huët, CFO, Unilever
Agenda
• Overview of the research• Key definitions• Biodiversity, ecosystem services and corporate performance• Research methodologies:
» Case studies» ACCA member survey» Company disclosure survey» Interviews with company directors
• Key findings• Recommendations
Key findings
• Perceptions of BES as a risk are variable within the accountancy profession
• Corporate BES disclosures, as currently practiced, are too limited to provide insights into risk management
• Existing financial reporting and disclosure standards can be applied to the issue of BES
• Companies in a range of sectors are exploring the use of valuation techniques to assist in decision-making alongside other means of identifying and evaluating risk
• There are a number of barriers to corporate action
• Variability in understanding of the concepts and terminology
Recommendations
CFOs Accountants
Engage with experts to understand impacts and dependencies
Engage with experts to increase skills
Consideration of natural capital in risk and materiality assessments
Call on accountancy bodies to provide guidance
Disclose material natural capital impacts and dependencies
Follow and track new guidance that becomes available
Educate other board members on the importance of natural capital
Contribute to the development of natural capital accounting methodologies
Consider whether natural capital can be incorporated into financial accounts
Pilot or trial natural capital accounting methodologies, where appropriate
Launch Events UK Panel
Moderator:• Vincent Neate, Head of Climate Change and Sustainability, KPMG
Panelists:• Richard Martin, Head of Corporate Reporting, ACCA• Kerry ten Kate, Director, Forest Trends and member of UK Natural Capital
Committee• Gail Smith, Sustainable Agriculture Technical Manager, Unilever• Pippa Howard, Director of Business and Biodiversity, Fauna and Flora
International
Attendees• Unilever, BP, Defra, Treasury, Merril Lynch, HSBC, Barclays, etc.
Events also held in: Australia, New Zealand
Questions
Contact for further information
Dr Stephanie HimeLead specialist biodiversity and ecosystem services, KPMG Climate and Sustainability Services [email protected]
Is natural capital a material issue?